InterWest News
Angel investors also watching over start-ups Their role in providing funding for young firms is growing
The Dallas Morning News
Victor Godinez
9 May 2006
Entrepreneurs have a lot of options when it comes to finding funding for their young companies.
While venture capital investors are one of the most well-known sources, angel investors are quietly taking a bigger role.
On Thursday, local entrepreneurs will have a chance to get an update on the state of angel investing at a Southwest Venture Forum event sponsored by Southern Methodist University's Cox School of Business.
Whereas venture investors generally manage large investment funds that dole out millions of dollars per deal, angel investors work on a smaller scale.
Often, angel investors invest personal funds, anywhere from a few thousand dollars up to a million or so.
But while each deal is fairly small, there's more than enough angel money floating around to fit on the head of a pin.
$23.1 billion
According to the University of New Hampshire's Center for Venture Research, angel investments totaled $23.1 billion in 2005, a 2.7 percent increase from 2004.
That topped the $21.7 billion handed out by venture capital investors last year.
Laurence Briggs, chief executive officer of the InvestIN Group, a network of angel investors based in Dallas, is one of the panelists scheduled for the Venture Forum event.
He said the supply of and demand for angel investors is growing.
"I think people have really made a lot of money in the last couple of years and now, with unemployment being so low, a lot of people are willing to take the risk of jumping out of a job and trying something new," he said.
According to the University of New Hampshire report, there were 227,000 active angel investors in 2005, up from 225,000 in 2004.
Working together
John Adler, a partner in the Dallas office of venture capital firm InterWest Partners, said angels and venture capitalists often work together.
"We are complimentary," he said. "Part of my guidance to entrepreneurs as they look to raise equity capital is to pick their investors and qualify them based on what their needs are."
Mr. Adler said that while venture firms can provide young companies with tens of millions of dollars in capital, they generally limit those investments to companies with the potential for hundreds of millions of dollars in revenue.
"Whereas we may be trying to build a company that will do $100 million a year in revenue, 250, maybe a billion, angel investors will be perfectly comfortable with a company that has 30, 40, 50 million in revenue and is wildly profitable," he said.
In addition, venture firms often require entrepreneurs to hand over a larger chunk of the ownership of the company in exchange for the investment.
Often, VCs can demand as much as 80 percent ownership, while an angel investor may be satisfied with 20 percent.
Mr. Briggs said many angel investors are organizing into formal groups like his, instead of pursuing individual investments on their own.
That allows angel investors to alert their fellow investors to deals they might find appealing.
"It's now getting more and more formalized into networks and groups," he said. "You've got groups like mine, which are absolutely typical around the country."
Mr. Adler said those groups also reinforce the fact that angel investors are every bit as professional as their venture counterparts.
"I think it's more reassuring as an entrepreneur to go to something that's a little more structured," he said.
Events
Today: Government Contracting Orientation, 10 a.m. to noon, Dallas Small Business Development Center, Bill J. Priest Institute, 1402 Corinth, Room 1534, Dallas. No fee. Call 214-860-5889 for more information.
Wednesday: Changing Your Mindset to Make Money, 10 a.m. to noon, Dallas Small Business Development Center, Bill J. Priest Institute, 1402 Corinth, Room 1534, Dallas. $25 fee. Call 214-860-5889 for more information.
E-mail: smallbiz@dallasnews.com
